How the Fed’s Interest Rate Hikes Could Impact Your Money

As interest rates continue to rise, these increases could impact your ability to make major purchases in the near future (hello, new home!). See below for six specific ways the Fed increases could hit your wallet in 2017, courtesy of GoBankingRates.com.

1. MORTGAGE RATES MIGHT RISEThe lasting impact of a Fed rate hike on mortgage interest rates remains unclear. Potentially, the initial Fed interest rate hike could raise rates on the long-term bonds used to set mortgage rates. Yet, 10-year Treasury bonds are also influenced by inflation expectations and the worldwide economic outlook. In the short term, adjustable-rate mortgages and home equity lines of credit would be more sensitive to a federal rate hike.

So, although it’s impossible to say exactly how a rate hike will impact mortgage rates, it might be best to eliminate uncertainty. If you’re seeking a new home mortgage or considering refinancing an existing mortgage in the near future, you might want to lock in a loan sooner rather than later.

Following the Fed rate increase in December 2016, rates for a conventional 30-year fixed rate mortgage ended at an average of 4.2 percent for the month. This is the highest monthly average since April 2014, according to Freddie Mac.

2. AUTO LOAN RATES COULD TREND HIGHERThe small rise in the federal funds rate shouldn’t affect car buyers too much. U.S. automakers realized a record-breaking 2016, as automakers sold 17.6 million cars and light trucks. This marks a 0.4 percent increase in sales from the record set in 2015.

Should interest rates continue to rise, auto loan rates will likely follow suit. If the next Fed rate hike is small, it’s unlikely consumers will be impacted in any significant fashion in the short term.

Dealers want to keep new cars moving, so they’re motivated to continue offering incentives. In the long term, multiple Federal Reserve interest rate hikes could eventually take a noticeable toll, so if you’re thinking of getting a new car in the next few years, keep a close watch on the outcome.

3. FED’S DECISION WON’T RAISE INTEREST RATES ON BANK DEPOSIT ACCOUNTSA Fed rate announcement might sound like a great opportunity to collect higher interest payments on deposit accounts, but it doesn’t work that way. Even with an interest rate hike from the Federal Reserve, you probably won’t see higher interest rates on your checking and savings accounts. Despite the December 2016 rate increase, rates haven’t really changed much.

Of course, there’s always an exception to the rule. In December 2015, shortly after first federal rate hike, JPMorgan Chase & Co. announced an increase in deposit rates for select customers, but this was not the industry standard.

In general, when the Fed raises interest rates, savings rates rise at a slower rate than borrowing rates. Of course, if rates continue to increase in 2017, banks will need to raise interest rates on deposit accounts to remain competitive. If Fed rate hikes are instituted, shop around to ensure your bank is offering you a fair rate.

4. CREDIT CARD INTEREST RATES SHOULD NOT SPIKECredit card interest rates are variable and somewhat sensitive to hikes in the federal funds rate. As interest rates and consumer confidence go up, your credit card rate will follow. Don’t expect a huge spike, however, as recent legislation prevents lenders from quickly hiking the rate on existing balances in most cases. If rates skyrocketed overnight, consumer spending would plummet — the exact opposite of what the Federal Reserve wants to happen.

Under the terms of the Credit CARD Act of 2009, issuers are typically barred from raising rates on existing balances unless you’ve missed two consecutive payments. They’re also required to provide 45 days advance notice prior to increasing your interest rate on new purchases, allowing you time to cancel the account if you so desire. Unfortunately, credit cards with a variable interest rate are an exception to this rule, so if your card does not have a fixed rate, you might see an immediate increase.